Where will your society be in a year?

Do you know what's happening to your building society? Financial Mail believes that while shareholders of banks might have plenty of information at their disposal, the people who own building societies - the saving and borrowing customers, or 'members' - are often left in the dark.

That was why it came as a complete surprise to the 900,000 members of Derbyshire and Cheshire building societies that their societies were to be taken over by the gigantic Nationwide.

The deals were announced on Monday 8 September, 2008.

What struck many members was the fact that their societies' bosses had publicly maintained, until recently, that no such deals were on the cards. Were they lying? Loyal members will never know.

Financial Mail believes further consolidation among building societies is inevitable and since the announcement that Derbyshire and Cheshire would be taken over, there has also been talks between Britannia BS and Co-op Financial Services over a merger.
We want members of all societies to be informed of, and involved in, any deals affecting their businesses.

In the wake of the takeover of Derbyshire and Cheshire, Financial Mail's Jeff Prestridge and Richard Dyson, contacted the bosses of the biggest 10 remaining societies, after industry giant Nationwide - to ask them about their intentions regarding the businesses they run on behalf of their members.

Their responses are recorded below.

Britannia

The second biggest society after Nationwide (but nonetheless merely a quarter the size of Nationwide), Britannia has been hugely successful. But, post-crunch, parts of its mortgage business have shrunk and attracted criticism, because they relied on a similar model to that which nearly destroyed Northern Rock.
Half-year results for 2008, announced in August, showed that profits were down 38%.

Neville Richardson: Britannia Group Chief Executive

There have been persistent rumours that Britannia and Yorkshire are considering a merger, although sources have told Financial Mail that this is not on the cards - for now.
Britannia boss Neville Richardson will not be drawn, saying that any discussions with other businesses, if they were underway, would have to remain under wraps until concluded.

From a financial point of view the society is in no need whatever to merge, he stresses. 'We are strong, we are resilient, both in terms of liquidity and capital. To the extent that we would think any deal would be in our members' best interest, we would, of course, consider it.'

Yorkshire

This society, which is conservatively run, does not have a history of aggresive growth. It appears to want to grow its business by finding new members and selling them more accounts. Director Andy Caton told Financial Mail: 'When merger discussions happen, it has to be on a confidential basis. Whether or not a specific discussion was underway, it would be inappropriate to comment.'

Coventry

Coventry is in rude good financial health. Recent half year results showed that profits in the first half of 2008 were £35.5m, nearly 8% up on the equivalent figures for 2007. As a result, the society is under no pressure to remain anything but an independent building society.

On Friday, chief executive David Stewart said the society was currently not in discussions with anyone. He added: 'Our commitment is to the City of Coventry. So, the only way we would consider a merger is if a smaller building society came to us with a view to a takeover.'

Chelsea

This is a mutual that wants to grow by doing deals with other ones, and it makes no bones about it. It's currently absorbing the Catholic Building Society, a tiny society whose members are focused around London and the charitable sectors.

These qualities make the deal attractive to Chelsea, says boss Richard Hornbrook. But he stresses that the Catholic is in good financial health, and the takeover was not a 'rescue'. 'The Chelsea's capital position before and after the deal remains unchanged,' Hornbrook says.

Are any other deals afoot? 'I couldn't confirm or deny that,' says Hornbrook.
But he also said that, apart from the Nationwide deal with Derbyshire and Cheshire, he 'was not aware of any society undertaking two merger deals at once.' Take that as a 'no', then. Just for now...

Skipton

Of all the building societies Skipton is the most diversified. Although its core business is traditional savings and mortgages, it is now involved in a range of related financial businesses - everything from credit reference agencies through to estate agencies and financial advisers.

Although the society has been linked with a number of its competitors in the past, including Cheshire, diversification seems the preferred option. But with a new chief executive taking over from the beginning of next year, a change in strategy cannot be ruled out.

Skipton boss: John Goodfellow

On Friday, Skipton boss John Goodfellow said the society did not need a merger and 'was not in talks' with any other society.

West Brom

West Brom's latest financial results were not overly impressive. Profits for the year to the end of March 2008 fell from £44.1m to £41.1m and the society's significant exposure to the buy-to-let market has caused concern among some analysts. In recent weeks, a number of staff on the lending side have been made redundant while the society has closed its commercial lending department to new lending.

Stephen Karle, chief executive, is adamant that the society will remain independent. On Friday, he said: 'One year on from Northern Rock, I can categorically state that we are not in talks with anyone, we are not in talks with anyone at the insistence of the Financial Services Authority, we are not in talks with Nationwide. We are not in talks to be taken over or to take over another society. We are utterly viable and profitable and got financial strength.'

Jeff Prestridge, Financial Mail: What can you expect from your building society in the coming year?

On the society's exposure to buy to let, Karle says 'Our arrears as a percentage of our mortgage book are some half the average for the rest of the industry. On buy to let, the equivalent figure is 0.28%. Our buy to let business is good quality.' As for redundancies, Karle says the society will continue to 'work' on its cost base.

Leeds

Leeds is financially strong, a strength recently recognised by KPMG in its review of the building society industry - it said the society was among the most profitable. It also has a proven record in acquiring smaller societies. It recently snapped up minnow Mercantile and integrated it within its existing business without closing branches.

Leeds, like Chelsea, is keen to do more deals like Mercantile although on Friday chief executive Ian Ward said he was currently not in talks with any of his rivals. He said: 'Of course we would be happy to speak to any society whose board decided that they no longer wanted to remain independent.'

Principality

This Cardiff based society has just reported a sharp drop in profits, a result primarily of losses in its subsidiary businesses - second charge lending, estate agencies, surveys and valuations whole-of-market broking. The society is taking steps to minimise losses by reducing costs and in the case of its broking arm closing it to new business.

Rising arrears on its second charge lending is what ultimately forced Derbyshire to seek refuge in the hands of Nationwide but Principality maintains its arrears are not as high in this area - four per cent compared to Derbyshire's 9%.
Despite the current difficulties, chief executive Peter Griffiths says the society has a strong balance sheet and is not in takeover talks. He said: 'We want to grow the business organically.'

Newcastle

This society is not for joining up with a bigger rival, if you believe boss Colin Seccombe. Newcastle BS is a conservative lender and so has steered a safe course through the market conditions which wrecked Northern Rock, the bank from the same city. In fact the mutual is mopping up staff being let go by the crippled Rock. Around 60 former Rock employees now work for Newcastle BS, with a further 70 jobs in the pipeline.

Seccombe told Financial Mail that mergers or acquisitions were 'not our greatest priority. If a smaller society approached us, asking if we were interested, we would consider it. But we certainly have no intention or need to go to find a larger partner. And we would be likely to rebut any approach that we received in that way.'

Norwich & Peterborough

This small society (420,000 members) is focused around East Anglia. It's successful in a sleepy, local sort of way, and doesn't appear to harbour ambitions to change - at least not dramatically. 'We are not in discussions with any other society at the moment,' Norwich & Peterborough boss Matthew Bullock told Financial Mail.